CHICAGO -- A recent federal appeals court ruling in favor of New Jersey's discarded health insurance plan could help states that want to make insured patients contribute to uninsured patient's hospital costs, according to rating agency officials and some health-care analysts.
In a 2-to-1 decision, the U.S. Court of Appeals for the Third Circuit in Philadelphia last week reversed a U.S. district court ruling that struck down a New Jersey hospital surcharge used to financed health care for the state's uninsured patients.
New Jersey remade its healthcare reimbursement system after the district court ruled last year that the surcharge on hospitals violated federal law by burdening self-insured and union health-care plans. The Employee Retirement and Income Security Act of 1974 says that such plans are exempt from state laws.
But in the appeals court majority opinion, Judge Walter K. Stapleton said that the effect of the surcharge is "no different from any state regulation that increases the cost of goods and services that hospitals consume and pass on."
Like New Jersey, a number of states have abandoned surcharges in their attempts to cover the uninsured. However, Fred Martucci, a managing director at Fitch Investors Service, said the decision could strengthen states that do want to use surcharges.
"It certainly will mean something to programs that are facing [legal] challenges," Martucci said. He cited New York and Connecticut, where several lawsuits are pending that challenge surcharges to pay for health care for uncompensated residents.
Cynthia Keller, a director at Standard & Poor's Corp., agreed.
"If [the decision] is upheld, it will strengthen states' positions," Keller said. "Even though the systems in other states are not exactly the same [as New Jersey's], the overall issue of a broad-based tax assessed by the state to pay for uncompensated care is the issue."
Keller said the appeals court ruling could lend support to a 2% state hospital tax in Minnesota, which helps finance MinnesotaCare, the state's health-care program for the uninsured. A dozen labor union health-care funds in the state said last week they intend to file a lawsuit arguing that the tax unfairly burdens private insurance programs.
Rick Slowes, assistant Minnesota solicitor general, said the New Jersey decision could strengthen the state's position against a challenge from the unions.
In general, said John Goetz, a vice president and manager of health-care finance t Moody's Investors Service, the appeals court decision "throws lawsuits [on such issues] into question."
The ultimate impact of the appeals court decision could be limited, said Anne G. Ross, vice president and managing director at Roosevelt & Cross Inc. She said many states, including New Jersey, have turned to broader sources of funding than the surcharge.
Meanwhile, rating agency officials said last week's decision will have little impact on New Jersey hospitals because the state abolished the hospital surcharges last year in response to the district court decision.
In May 1992, Judge Alfred Wolin of the U.S. District Court in Newark ruled against the New Jersey surcharge. In November of that year, the state enacted Chapter 160, a massive overhaul of the state's health insurance program that abolished the surcharge. The package also dramatically deregulated health-care prices, instituted a system of broader insurance coverage, and replaced the surcharge revenues with money from an unemployment trust fund.
The group of 14 health plans in New Jersey that filed the suit are contemplating further action over a reported $130 million of escrowed funds.
Ronald Wiss, one of the attorneys for the plaintiffs, said that before the state reforms were implemented, the health plan's escrowed funds were slated for paying the surcharge.
Wiss said that his clients were disappointed with the appeals court decision. By the end of the month, the plaintiffs will decide whether to go to the U.S. Supreme Court or to ask the appeals court to rehear the case, he said.
Steve Fillebrown, director of research and information services at the New Jersey Health Care Facilities Financing Authority, said he did not think the appeals court's decision would cause changes in the current law.
However, Glenn Wagner, vice president of credit research at Morgan Stanley & Co., said the appeals court ruling could "open the door" for New Jersey to use surcharges in the future.
"I don't think [the appeals court decision] is a moot point just because [the state has] implemented health reforms," Wagner said.